Going for Financial Independence in a High Cost City

This is a guest post from Amanda who has an inspirational financial story to share.  Their single-income family of four currently lives in Vancouver and building wealth through the traditional methods of saving and investing.  Here is their journey towards financial freedom by the age of 50.

When FT asked if I’d like to share our story, I jumped at the opportunity. I hope that in sharing our journey to financial independence, I’ll have more opportunities to connect with and learn from other readers of the MDJ blog.

Who are we?

We’re a regular middle-class Canadian family living in a nearby suburb of Vancouver. We own our house and two cars. We enjoy one long vacation and a few weekend getaways each year. I’ve been at home with our sons since they were born, and we’re on track for financial independence before age 50 (in about 7 years.)

Related: How we save money on vacations.

How did we get here, with no lottery wins, inheritances, or high-paying corporate jobs to thank? Read on to learn about the key factors in our financial successes.

Factor 1: Strong foundations

My husband and I were fortunate to have been raised by frugal, hardworking parents. They immigrated to Canada in the 60s with next to nothing and spent a lifetime working and saving hard to give their children brighter futures. For most of their working careers, our parents were low to middle-income earners. They knew the value of money and how to make a dollar stretch. This is one of the critical factors in our financial success – we had a strong foundation in the example our parents set for us.

Through our childhood years, our parents squirreled away all our Child Tax Benefits, birthday and Christmas money. They wanted us to one day have a nest egg to put towards a big life goal, and that’s exactly what we did. Those nest eggs eventually became about a third of the down payment on our house.

Factor 2: Fear of debt

In his TEDx talk, Preet Banerjee says we need to bring back the fear of debt, particularly consumer debt. Our parents always held this belief and put a healthy fear of debt into us. In fact, they took this to another level and taught us to fear “good” debt (a mortgage) just as much as “bad” debt (credit cards). They showed us how much of our hard-earned money was going towards the interest on our mortgage, and how little (in the early years) goes towards the principal. This was a vivid lesson in how debt can whittle away at your savings.

Because of this, we’ve never had any form of debt outside of our mortgage – no credit card balances, car loans, or HELOC. We avoid debt like the plague, and as a result, most of our money has been working for us instead of some big bank.

Factor 3: House hacking

House hacking is a newish term that refers to homeowners who minimize or eliminate their housing costs by renting out portions of their home. While this term didn’t exist when we bought our home, the house hacking concept was definitely well-known. In those days, it was referred to as a basement/ secondary suite or mortgage helper.

Part of our parents’ financial successes was due to “house hacking” in their early years of home ownership. When it came time for us to buy a house, our parents strongly encouraged us to look for a house with a rentable basement suite.

We looked at over 50 properties before we finally found our dream home – and it had a large, bright basement suite. With this suite, we now had a portion of our house ready to work for us. We could either rent it to tenants or host international students – both were choices we were happy with.

Factor 4: A side hustle

We’d initially considered renting our suite to a tenant but decided instead to try hosting international homestay students. We’d heard wonderful things about hosting students from other homeowners and it sounded like a great fit for us.

Hosting students have been a life-changing experience and it has enriched our lives in so many ways (that go far beyond the monetary benefits). We’re very thankful to have had the opportunity to meet and learn from so many students from all over the world.

As a stay-at-home mom, hosting students has been a perfect side hustle. It feels good to contribute to our family income without having to leave my kids to do it. The hours are flexible and the work fits our daily lives (a little more cooking, cleaning, and laundry – no big deal!)

Very few families we know take advantage of this hybrid of house hacking/side hustle, but perhaps some of you will consider it now.

Factor 5: Frugal spending

I started typing a list of things we do to spend frugally, but FT’s already done it! Here’s his list: https://milliondollarjourney.com/25-ways-i-save-money.htm. It’s remarkable how similar our lists are – so no point in repeating it all here.

Factor 6: High savings rate

Anyone in the FI community knows that your time to financial independence is linked more to your savings rate than to your income level (the higher percentage of income you save, the faster your path to FI.) This year, we’re on track to save about 55% of our income. We weren’t always able to save this much due to our lower incomes when we were starting out. But we’ve been quite good at resisting lifestyle inflation, so our savings rate has increased with each passing year as my husband’s salary has increased.

Factor 7: Be different

This factor is key when living in a high cost of living area. In such areas, you’ll likely be surrounded by people who have the means (or the credit limits) to spend easily. Fancy cars, trendy furnishings, and luxury vacations are the norm. While I’m not judging any of these choices, to reach FI at a younger age, you have to see these things as choices – not must-haves. You do not need to follow the crowd.

Having financial independence as a goal is kind of like a super-power. It gives you intense motivation and drive to resist the pull of lifestyle creep, and makes it easy to “be different.”

Putting it all together

Now you know how we got here – let’s look at some numbers to give it more context. Our annual spending is about $45,000 for all expenses except travel. I budget $8,000/year for travel (usually it’s less, sometimes it’s a little more). That’s a total of $53,000/year, so we’ll need $1.325 million in investable assets to reach financial independence (25 x $53,000).

However, I feel more comfortable with a $60,000 annual budget to allow for future large expenses (car replacement/home maintenance/out-of-pocket medical and dental costs.) To meet that goal, we’ll need $1.5 million of investable assets to reach financial independence (we are currently at $650k investable assets).

“Wait!”, some of you might say. “If you’re saving 55% of your income, and you’re spending $53,000/year, you DO have a high-paying corporate job!” True, that is the case NOW. But this wasn’t the case for most of our lives. A large portion of our savings came before my husband attained his new, higher salary. (In fact, that could be yet another factor in our financial success – do well at your career and work hard towards career advancement and pay raises.)

In closing

I hope our story shows that you don’t have to be special or receive a windfall to reach financial independence. I do realize that housing costs in areas like Vancouver will change the journey for those just entering the housing market – you’ll have to be more creative in your housing choices. However, the steps we took to increase our income and savings can still help to move you in the right direction. 

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FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.
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3 years ago

Looks like these folks have a good plan and set it up when it was feasible.
I am interested in how folks starting out – 20-30 yrs old – can do something similar especially in a horrible place to start out like the GVA or GTA.

Future money-bags
3 years ago
Reply to  Simon

A large component for me being able to achieve this, is the balance and transferring of life expenses.

This could mean having a roommate for a long duration, sharing bills, buying in bulk, planning meals, buying necessities over desirables.

I have learned to want and desire the things I need and rely on. So it to want a new car, wait until you need it. If you want a new suit, wait until you need it.

It takes a lot of planning, sacrifices, commitment and will power. Once you have achieved a. goal you set out for yourself, immediately make a new and larger goal without hesitation. This will prevent you from plateauing and becoming too comfortable in your daily routine.

Living and building relationships with like minded people can help tremendously as well. If your friends are successful and hardworking and smart with their finances, it’s bound to wear off on those around them.

3 years ago

Thanks for sharing Amanda. That sounds a lot like what my parents were like but it was also a different time.

What I am wondering about is whether all of it is worth it. It sounds like you guys do still take some vacations which is good. From your descriptions I’m not sure how you handle other things like going out to visit a museum, maybe a concert etc.

I’m saying this because even though 50 is a relatively early age to retire you also still spend a lot of years until reaching that age in which things can happen. I don’t wish any harm but I’ve personally changed my attitude from “I’ll do that once I retire” to “I’ll do it whenever I can” since I watched my dad be diagnosed with cancer 2 years after going into early retirement (he retired at 58). He died 2 years later. Had he gone into retirement at 65 …

I guess what I am trying to say is that it’s a balancing act to me. Save, sure. But don’t take away life’s joys and postpone for “early retirement” too much. One might not enjoy it for as long as thought.

3 years ago
Reply to  Alec

I fully agree with every point you’ve made Alec. My mother, like your father, also died of cancer at a similar age and in a similar timeframe. She lived a happy life, and died with no regrets, but it was far too soon. Because of her example, I’ve always lived my life to its fullest. I could die today and be satisfied that I did everything I could in the time I had, with the financial resources that were available to me.

You’ve made me realize that perhaps my article makes us sound very miserly and stingy! In fact, we live very full lives and often go to festivals, museums, movies and the odd concert (usually gifted by family or friends.) Many of these activities are free or low-cost, so we can easily afford to take part in them. We also regularly enjoy all that mother nature offers – for free!

I’m always very conscious of our spending, but I’m careful to be frugal – not cheap. There’s a huge difference. Being cheap and stingy leads to unhappiness and feelings of deprivation. That’s not my goal, whether it be pre- or post-retirement. Frugality is choosing not to be wasteful with spending, and being mindful of where our resources are going.

Your comment is a thoughtful, meaningful one and I think all of us should take your advice to heart. Thanks for sharing.

3 years ago
3 years ago

Hi GYM – thanks for the kind words. My answers:

– Yes, the student income is included in our calculations of 55% savings rate. We earn an average of $10K/year from hosting (before subtracting expenses, which is portions of utilities, property tax, mortgage interest, etc.)

– My math is based on a 4% withdrawal rate so my husband can quit working his current job. But we will work at fun, part-time jobs for maybe 5 years after that to allow our nest egg to grow until we can hit a 3.5% withdrawal rate.

Does that all make sense?

I try to be pretty accurate with my math, but I also build in lots of buffer in different ways (see my reply to Leo at the top.) So that makes my math a bit fuzzy. However, it gives me the best of both worlds – it’s as realistic as it can be, but it allows for flexibility and options in case things don’t go as planned.

3 years ago
Reply to  Amanda

Yes it makes sense, thanks! Working part-time I think seems like the best of both worlds (financial independence and freedom but also knowing you are contributing to your nest egg still).

3 years ago

Fellow Vancouverite here too :)

Thanks for sharing your story, Amanda! Impressive annual spend for a family of 4! My husband grew up with his parents hosting home stays as well and he has met many people around the world from that program (and even visited some when he went to visit their country).

I have a few questions:

Are you including the income for your home stay (I am guessing $700-$1000 a month) in the 55% savings rate? Or is this in addition?

What is your SWR (safe withdrawal rate) intending to be on a 1.3 million nest egg, and how many years is your projection of how long the portfolio will last (I am assuming 30 years?)?

3 years ago

Why does nobody consider the expenses to raise kids?
I put aside over 200K in RESP for the college alone (two kids)
After school activities are easily 6-8K per year.

This is the main reason why my wife and I still working at 44 (with 2M investable assets and 1M house with 250K mortgage)

3 years ago

Kids are surely expensive. After school activities cost more than $1000 for my two kids each month. I am also paying $600,000 difference for a bigger house with a better school. This should be considered as cost for having kids. I don’t put aside extra for college. I plan to downsize once kids go to college and the money freed from downsizing the house will be their educational fund.

You are doing great with 2M investable assets. Even with a 3% rule, you can withdraw $60,000 without touching the principle. 44 is very young and nothing wrong with working at this young age. Maybe one of you can retire early already if working and taking care of the kids are too much. It’s definitely too much for me, but unfortunately I began investment too late and still need to work for financial security.

3 years ago
Reply to  May

May – have you considered putting even a little bit into RESPs? The government matches your contributions up to $2,500/child. That’s FREE MONEY! It’s a 100% return on your investment. Where else can you get that?

Further, if you live in BC and your kids were born after 2006, they can receive a one-time government grant of $1,200 to put into their RESP. It’s called the BCTESG. No contribution necessary – you just need to apply through an institution that offers it.

3 years ago
Reply to  Amanda

Oops – I’m sorry! Shouldn’t reply to comments late at night. Please ignore my 100% matching number for RESP grants – it is in fact 20%($500) in grants you get for $2,500 in contributions. It’s not 100% – my apologies for the error.

3 years ago
Reply to  Amanda

Yes I do. I max out all tax free accounts every year. But depending where the kids want to go, resp alone may not be enough. A good university in USA cost 70 to 80 thousands a year.

3 years ago

Kids-are-expensive – holy moly you’re knocking it out of the park! 2M investable assets, 1M house, and 200K in RESPs at 44?!! That’s just amazing. Congrats on your massive accomplishments! Really, you could teach us a thing or two about saving.

Now, about kids being expensive, I have to politely disagree with you there. I’m going to wade right into this thorny topic, even though I’m sure I’m going to ruffle some feathers… ‘cuz I got some thoughts on that!

You’re right – kids CAN be expensive, but they don’t HAVE to be expensive. We spend under $1000/yr on activities for both of our boys. Remember, you can “be different”. Kids don’t have to be in tons of activities, nor do they need to be expensive activities. My kids are active, healthy and have learned a wide variety of sports skills through community centre classes. They’re affordable, close to home, and fun.

For academic skills, a little bit of research can help you find free/low-cost options (e.g. Splash Math app for math practice, Typing Instructor computer software to learn to type, Code.org or Scratch to learn coding, Duolingo app to learn a new language, free library programs to learn about Raspberry Pis, robotics, or creative writing.)

For emotional/personal growth, good parenting books from the library are free, as are meditation apps for kids. Even more effective, and totally free – is to take the time you spent on too many activities and put it towards more quality time together doing free stuff like taking a walk, playing board games, learning to cook, etc. This pays itself in dividends, especially as your kids enter their teens. Having built this strong connection with them, you’ll save yourself money on counselling in the future!

I’m by no means a perfect parent, nor are my kids perfect. But they’re happy, successful and resilient. They’re well-liked and have lots of friends, despite not participating in all the rep teams and expensive summer camps everyone else seems to be involved in. They are in no way left out, ostracized nor do they feel deprived. They in fact feel lucky to have such freedom in their schedules.

Please don’t take my words as judgement. If you and your kids get a lot of value out of your activities, by all means, do it! Just be mindful of the invisible pressure we all feel to “keep up” – especially when it comes to our children. We’re a generation of FOMO parents, and we need to fight back against it because really – our kids will be just fine if they have fewer activities.

Try taking a step back and consider what the end game is for any particular activity. Can you substitute it with a cheaper alternative that’s just as enjoyable and effective? Can you simply do without or cut back on the amount of activities? There are always options – spending a fortune on kids’ activities is NOT mandatory!

As for saving for their education, 200K sounds like a very nice-sized amount for two kids to attend post-secondary – wow, well done! I’d think that would be enough? Even if not, there are scholarships and bursaries. There’s also the option to earn the first and second year of credits through a local, smaller university/college more cheaply, then transferring to a larger university. There are ways to save on post-secondary – but it will require you to “be different”. It may mean you don’t have the status of going straight into the top university right off the bat – but is that status worth you working another X number of years to pay for it?

Again, my goal isn’t to make others feel judged for their decisions. We all need to make our own decisions on what’s most important to us. No one has the right to tell us if those decisions are right or wrong. Heck, we spend $8K/year on travel – many would call that ridiculous! It’s a matter of making smart trade-offs so you can feel good about your decisions and not deprived. I hope to show by our example that being different can be a path to more happiness, success and wealth.

3 years ago
Reply to  Amanda

Under $1000/yr deserves a big WOW. In my house, kids decide what activities they want. It’s hard for me to say NO when they require it. Piano lessons are one dollar per minute. I pay around 400 per month for piano alone. Each year I ask the kids if they want to continue and hoped them to say no. So far they still want it.

3 years ago
Reply to  May

Sure piano lessons might be a bit different unless you know how to play yourself. However I think a lot depends on whether you have a stay at home parent. With two parents working you also have more expenses. A lot of great cheap activities can be done with your kids if you have _time_. If you don’t have time you pay someone else’s time.

3 years ago
Reply to  Alec

You’re right Alec – time is certainly at a premium for most families, but especially so when both parents work. I agree that sometimes you need/want to pay others (as we do with our yardwork and oil changes.) Sometimes it’s a matter of buying some time and sanity for yourselves – and I think that’s totally okay!

3 years ago
Reply to  Amanda

$8000 per year on Travel is not ridiculous at all. It’s money well spent. Good memories from the travel is very valuable. Also, the education for the kids should include both ten thousands books and ten thousands miles on the way. It’s good to take the kids to see the other parts and other people of the world.

With kids, travel is also more expensive. You pay four tickets now instead of two.

3 years ago
Reply to  May

“…ten thousand books and ten thousand miles…” Wise words!

3 years ago

Math quiz – What is the yearly gross income of Amanda’s husband based on the above-mentioned info?

3 years ago

While this may be advice about how you could do that in a Vancouver suburb in the past, it doesn’t really apply these days. As a high-tech immigrant 20 years ago, I was able to buy a townhouse in the cheapest Vancouver suburb (which is really an Asian-Indian city), with a family income in today’s dollars of about $170k/year. And I saved enough to retire before 50. There would be no way I could do that today, with a townhouse like mine selling for $650k, and houses as described in this article going for well over $1.5M.

Future money-bags
3 years ago
Reply to  js

Although it is difficult in today’s world of Vancouver, it’s not impossible. Instead of buying a principal residence first, I chose to buy rentals first to build up equity and passive income. This is basically the only way for a low income maker to ever afford property around this area.

Currently refinancing some to further purchase more property.

3 years ago

JS, I echo what Future money-bags said – it’s more difficult now, but not impossible. As I mentioned at the end of my article, it will require creativity: renting, buying smaller, buying further away, hardcore house hacking (rent out the basement suite AND have roommates or students upstairs.) Or doing what Future money-bags is doing and becoming a real estate investor first.

Right here in Vancouver there’s a couple living on around $26K/year and planning to retire in their 30s: http://www.theprovince.com/business/young+living+cheaply+vancouver+bring+freedom/9692666/story.html

So it’s definitely possible if you can “be different”!

3 years ago

Hi, Amanda, thanks for the sharing and congrats on your financial achievement. It’s so impressive that your annual spending is about $45,000 for all expenses except travel. I live in suburb of Metro Vancouver too. Similar to you, I have two kids. Our annual expense is in the middle of 50K excluding travel. I feel it’s quite difficult to cut it further. We are both working and my excuse is that we have more working-related spending. E.g. I have to pay to get the kids picked up from school. Commuting also cost quite a bit with the gasoline having been expensive.

I will soon move into a new house with two spare bedrooms in the basement. Maybe I should host some international students too. May you please share some information regarding to where you find students and what is the responsibility of the hosting family? Do you think it’s possible for a working couple with two young kids who are already very busy?

Just like you, I am thinking to use heloc for a SM portfolio. But with the higher interest rate and the market at its top I probably will wait for a better time to do that.

3 years ago
Reply to  May

Hi May,

Mid-50K per year is still doing really well in the Vancouver area, especially with (I assume) daycare costs. You’re doing great!

Regarding students, here are answers to your questions:

– Where do you find students?
We work with language schools located in downtown Vancouver. Google Vancouver language school homestays and you’ll find at least half a dozen schools. We also know families who take in elementary or high school students from their local school district.

– What is the responsibility of the hosting family? 
Basically, it’s like having university-aged children. You’ll need to house and feed them and most importantly, interact with them. We treat our students like part of the family. They go shopping with us, hang out to watch movies, play with our kids. That’s what makes it an enjoyable experience – making the connections with them as people. Don’t treat your hosting job or your students like a meal ticket or you’ll all be miserable!

– Do you think it’s possible for a working couple with two young kids who are already very busy?
Absolutely! We know plenty of families who are dual income with little kids and they make it work. My best tip for successful hosting when you’re busy is to get really good at meal planning. Plan at least a whole week in advance, buy the groceries all in one trip, prep as much as you can on the weekend, and plan for some easier meals on nights when you know you’ll be home late.

Hope that helps!

El Pescado Grande
3 years ago

One of the previous commenters asked about whether the required income of $60k was before or after tax.

If the $60K consists of eligible dividends, and is split evenly between the two of them, they would pay zero income tax. (This is based on 2016 rates, which can change obviously).

If the income is half eligible dividends and half withdrawals from their RRSP, they’d pay $1,051 in income taxes as a couple. (The bank might withhold more from their RRSP withdrawals, but that would be their net payable).

It’s interesting to play around with these scenarios but in Canada, thanks to the preferential treatment of eligible dividends (and the fact that you don’t need to pay CPP and EI), income tax is often a low amount for couples with modest incomes.

3 years ago

Great points El Pescado Grande. Canadian dividends are great! Capital gains (if drawing from non-registered investments) are another preferentially-taxed source of income.

I also find it really interesting to play around with the different scenarios.

3 years ago
Reply to  Amanda

Amanda you have the right approach on everything. I do tell people that they will be very surprized at how net worth and income continue to grow even after retirement, even if you are downsized and retired before you expected it.
Paying attention and constantly reviewing all the scenarios, keeping basic expenses low, not being afraid of mortgage debt, and learning about how to invest in the stock market are all good strategies.
I do like luxuries and, beyond determining priorities, in my 40’s I was smug about my frugal abilities but decided to cut all spending on non-essentials to find out what really hurt the most. It was revealing. First I decided what I would never cut — decent hair cut/colour, decent spectacles every two years. Everything else was slashed to the bone. Every penny tracked. I reassessed at 6 months. What hurt the most and what was not noticed after a few weeks. Certainly cutting out popcorn at the movies and magazines did not hurt after the first few weeks. I did not notice subscriptions and memberships. Books hurt a lot, so a modest allowance for books was added back after 6 months. Once the bank account was flush enough to cover a years worth of major expenses in advance including RRSP contributions, insurance (only 18 months), I added back allowances for a few more categories. I upgraded my household equipment (linens, knives) but once that was done, no need for more. I added in the entertainment (courses, plays) clothing and travel categories.
Over the years of working I think not putting money into cars made a huge difference. Not commuting.
Cutting monthly automatic expenses works well too (subscriptions, membership, charity).
Cooking at home and saving eating out for pleasure, never because I am too tired or busy to cook.
Not smoking or drinking in bars (glass or two of wine is fine).
Cutting out all gifts and all holiday type spending (amazing what a wonderful time you can have just spending time with loved ones and making delicious food).
Never have consumer debt ever, even student loans. I worked my way through higher education at night.
Spending on appreciating assets is good.
Spending on neutral assets such as decent furniture, cutlery, dishes, pots that last forever is okay if you are the type to keep and use things forever (me). Spending on depreciating items, such as cars, motorcycles, ATVs, skiddos, boats, appliances, electronics, fancy vacuums, barbecues, sports equipment, power tools, lawn mowers, and gym equipment is to be avoided. Cheaper to hire people to do these jobs than own and store a lot of things that you don’t even use.
I make lists of what I want or think I might want, and then might buy something from the list if it has been on the list for a long time. i avoid impulse buying.

3 years ago
Reply to  Dunny

Dunny – thanks for your comment. I love your philosophy and learning about your spending habits. If only more people could choose to live more mindfully and oriented to their own values like you. I find that too many of my peers live based on FOMO and Facebook likes. It’s a sure path to a long, mandatory working life.

Thanks for sharing your story. It’s nice to meet others who are traveling along a similar path.